Wednesday, October 18, 2006

The Wild Ride Continues: An Interchangeable Menu of Payment Card Schemes (Commentary:

What are the unambiguous and transparent merchant (consumer) interchange fees for each transaction?


Although Visa® just posted their interchange fee schedule on its website, it is confusing and draws more attention to their scores of separate fees. Instead, Visa and MasterCard® should be completely transparent and post the exact interchange fee on each customer's charge card receipt. Once consumers and retailers understand the real extent of these charges, the volume of outrage will be amplified. Without this honest and straightforward posting, this hidden tax will continue to feed Visa and MasterCards' member banks with thirty billion dollars each year.

According a Consumer Reports (Nov. 2006) article, PIN-based transactions are "15 times more secure than signature-based transactions, says Tony Hayes, a vice president at Dove Consulting, a Boston financial-services consulting group."

However, Visa and MasterCard really want consumers to use these safer cards as signature cards because they make more money. There are many new schemes employed by Visa and MasterCard to embolden debit card users to pressure merchants to process the transactions at the much higher percent-of-sale rather than flat-rate fee. The latest gimmick was announced today and is more of a spoof on how to fiscally prepare families for the costs of higher education.

Consumer Reports’ (Nov, 2006) profile provided additional insights: "To encourage you to use their cards, some banks offer reward programs that let you collect points, usually for choosing debit transactions that are completed with your signature rather than a PIN. Make $9,000 in signature debits with your Citibank card, for example, and you can cash in your 4,500 points for a Dirt Devil hand vac, a $50 value. But these rewards help banks boost fees to their merchant customers. Banks charge retailers significantly more to process signature debits than they do PIN-based debits--77 cents vs. 25 cents on a $100 sale. Visa says merchants get higher traffic and revenue from its branded signature debits. Maximize it. Don’t choose your bank or debit card based on rewards. Debit-card benefits equal only about a 0.5 percent rebate on each dollar spent. It could take years to rack up points for a reward. Moreover, retailers are complaining about being forced to pay more, and Congress is investigating. These programs might not be around long enough for you to collect."


Earlier today, MasterCard Worldwide announced a new college savings reward program for Debit MasterCard. In their words: "... launch of an innovative debit card rewards program that will provide cardholders a new way to save for the rising costs of higher education." We wonder what the costs are to merchants and cardholders for this Upromise MasterCard Debit Card Rewards Program "rewards points?" Is it only valid towards signature transactions? With other programs, PIN cardholders are seduced but earn nothing unless they insist that merchants complete the transactions at the much higher signature rates. From what we can guess, a family who enrolls in this Debit MasterCard program when their children are still infants might at best "buy" them a seat at a junior college and then just to audit one class.

These games and lavish incentives to spend more must end.

Rhetorically, why don’t banks offer these perks to PIN transactions?

These obsolete interchange fees must end too.

We would like to see PIN-based debit cardholders involve retailers and request they complete each electronic payment transaction as PIN, rather than signature rates.

PIN CAMPAIGN: What would happen if on the day after Thanksgiving - "Black Friday," the busiest shopping day of the year - cardholders selected to use debit cards as debit cards?

Every day our customers prod us to run their debit cards as credit cards so they earn points, rewards and other gimmicks. If they only knew how much it was costing them!


More than 16-years ago, 30 Minute Photos Etc. was founded in Orange county, Calif. when film was king and digital cameras were a futuristic invention. Also, back then, we used credit card imprinters to swipe traditional payment cards over a thick stack of carbon copy receipts. Along with million of other merchants, after processing and clearing those receipts we were charged interchange fees that were cost-based; there were just a handful of various interchange categories.Despite huge technological and infrastructure advancement in the photo and banking industries, only one has made adjustments and lowered its fees. In our opinion, the other is operated by a highly sophisticated cartel that illegally controls and manipulates rates.Sixteen months ago, our company was the first to file an anticompetitive complaint against the two leading credit card associations. Nearly 50 suits have followed ours. Since then, the card associations and member banks have throttled backwards and done some impressive backpedaling. When we called for them to resciend interchange fees at service stations, they slowly responded with heavy-handed window dressing placing a $50 cap on interchange fees at the pumps; most motorists pay less than that anyway.

Recently, Visa announced a restructuring. But, if they think that passing along the antitrust liabilities into public hands will solve its problems, they might consider going to a restaurant. Talk to restaurant owners. Understand how passionate and decisive are their arguments which are shared with merchants across the country and abroad.With Visa and MasterCard's member banks aggressively promoting debit cards, merchants are in an added bind. When a diner at a restaurant pays with a debit card, funds are quickly withdrawn from their account, yet the establishment is forced to process the cards as credit cards and pay the much higher interchange fees. Think of your experience. Servers at most restaurants do not have portable electronic PIN terminals so PIN-based debit cards are transacted at the much higher signature rates.

[Commentary: - The Credit Card Interchange Report]